The government published a legislative proposal to open the possibility of a compulsory composition among creditor outside formal insolvency proceedings. Contrary to the composition plan in formal insolvency proceedings, the new compulsory composition can also extend to preferred creditors, secured creditors and shareholders.
The new provisions are inspired on the English scheme of arrangement. The composition plan can be offered by the debtor or a creditor without judicial involvement. The proposal provides for a system whereby the various creditors and shareholders are divided in separate classes. Only those classes of creditors and shareholders whose rights are affected by the composition plan are entitled to vote on the plan.
The composition plan is adopted if each class that is entitled to vote approves the plan by a majority of the votes cast, which majority in turn represents at least two-thirds of the relevant claims or share capital. If adopted, the court will subsequently on request issue an order to declare the composition plan binding (cram down), unless the interests of one or more creditors or shareholders are harmed disproportionately under the plan. The court may also issue and order if one or more classes have not approved the plan with the required majority, if the relevant class could in reasonableness not have come to exercise their voting rights in such manner (e.g. because a distribution in the event of a bankruptcy would be lower than the amount they would receive under the composition plan).
The period for consultation will terminate on 14 November 2014. Van Doorne will participate in the consulation with a number of proposals of improve the effectiveness and practical applicability of the new legislation.
For more information, please contact Stefan van Rossum.